Iron Ore

China has rejected the 33% cut in iron ore prices agreed to by Japanese steelmakers like Nippon Steel and one of the biggest ore supplier Rio Tinto; however, the world’s fourth largest mill, Posco of Korea is prepared to accept the deal. For over 40 years, the iron ore market has maintained an annual pricing system, which the Chinese mills are not willing to go with anymore. China is insisting on a cut of as much as 40% that would reverse last year’s surge after six years of gains. The market is now waiting to see whether China -- whose iron ore imports have more than quadrupled since 2002, when prices rose by almost the same rate - is forced to buy from the spot market or fall in line with the annual benchmark system. Meanwhile, the demand-supply situation in the iron ore market may exert greater pressure on price. The chief executive of BHP said that “in the medium term we don’t expect a sharp rebound in overall economic activity; in fact, we believe that economic recovery will be both slow and protracted.”

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